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The Dilemmas of Entitlement Reform

March 17, 2011 3:03 pmMarch 17, 2011 3:03 pm

There’s a bipartisan consensus that the only politically plausible path to entitlement reform requires maintaining the existing level of benefits for current retirees, and then easing the system in a more sustainable direction for the under-55 population. Politically plausible, but also obviously unfair, for the reasons David Frum suggests here:

For the under-40s who will be exposed to the fullest impact of entitlement reform, the past half decade has been an economic disaster. Now we are about to load an additional burden on a generation already struggling with under-employment and (in many cases) heavy student debt. We also are about to ask them to simultaneously pay the taxes to support current retirees and save for their own retirement, while receiving less help from later generations than earlier generations will receive from them.

To put it a different way: Every previous wave of retirees has been supported by the young. Today’s young are expected first to provide for today’s old, then provide for themselves.

This the problem with having a retirement system that pretends to just pay back what taxpayers put into it, but actually depends on perpetual transfers from the working age population to keep paying out benefits. (Over at HotAir, Ed Morrissey plucks out some useful quotes and statistics from Charles Blahous’s new book on Social Security making just this point.) The idea that we need to “keep our promises to our seniors” would be politically potent in any universe, but it’s well-nigh-impregnable in a universe where millions of Americans, liberal and conservative alike, are invested in the idea that Social Security and Medicare somehow aren’t actually part of the welfare state at all. And both Frum’s generation and mine will probably end up paying a stiff price for this illusion.

That said, I think Frum is being unfair to Paul Ryan’s roadmap for entitlement reform, which he accuses of making this problem worse:

… Ryan has for example proposed converting Medicare from an open-ended entitlement into a voucher for people currently in their 30s and 40s. At retirement, the voucher would cover some — but not all — Medicare costs. …

Good concept. But why should the voucher be the same for all, regardless of need? How is someone who has gone through life earning less than $44,000 — and half of all Americans do earn less than $44,000 — supposed to accumulate the savings to pay for insurance against the medical costs of the 2050s? And how is it fair to ask them to do so while paying taxes to support unlimited Medicare for everyone currently in their 60s and 70s, including retirees who earned many multiples of $44,000 during their working lives?

Ryan is right that we have to act early and decisively. But we cannot omit the third element: we have to act fairly and we have to act realistically. Bad enough that the young must pay twice. Worse if the poor young must pay twice to support the elderly rich.

Matt Yglesias highlighted Frum’s argument, snarking that “of course for Paul Ryan the regressive nature of the proposal is part of the appeal.” But actually, Ryan’s plan doesn’t include a Medicare voucher that’s “the same for all, regardless of need.” Rather, it does exactly what Frum suggests, and means-tests the voucher. Here’s a summary of the Ryan Medicare proposal, which I’ve had reason to quote before:

… The payment amount is modified based on income, in a manner similar to that for current Medicare Part B premium subsidies. Specifically: beneficiaries with incomes below $80,000 ($160,000 for couples) receive full standard payment amounts; beneficiaries with annual incomes between $80,000 and $200,000 ($160,000 to $400,000 for couples) receive 50 percent of the standard; and beneficiaries with incomes above $200,000 ($400,000 for couples) receive 30 percent.

… While any Medicare beneficiary, regardless of income level, is able to set up a tax-free MSA [Medical Savings Account] if he or she desires, the new Medicare Program establishes and funds an MSA for low-income beneficiaries. Specifically, for those who are fully “dual eligible” (eligible under current policies for both Medicare and Medicaid), and beneficiaries with incomes below 100 percent of the poverty level, the plan provides an MSA payment equal to the amount of the deductible for the average Medicare high-deductible health plan. Those with incomes between 100 percent and 150 percent of poverty receive 75 percent of the full deposit.

Like Frum, I have concerns about the distributional impact of the overall Ryan blueprint — but my concerns focus on some of the proposed tax reforms, not the entitlement overhaul. Where Medicare and Social Security are concerned, Ryan would make the welfare state of the future more redistributive, not less, which would at least partially mitigate the intergenerational unfairness that’s likely to be unavoidable in any entitlement reform.

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About

Ross Douthat joined The New York Times as an Op-Ed columnist in April 2009. Previously, he was a senior editor at the Atlantic and a blogger for theatlantic.com. He is the author of "Privilege: Harvard and the Education of the Ruling Class" (Hyperion, 2005) and the co-author, with Reihan Salam, of "Grand New Party: How Republicans Can Win the Working Class and Save the American Dream" (Doubleday, 2008). He is the film critic for National Review.